Signs of Global Growth Slowdown?

This weekend’s papers provided new signs of global economic slowdown. The first came from Japan. For the first time in 26 years – a long time – Japan became a net importer (imports exceeded exports). FT article sums it up:

The contraction was led by plunging sales of Japanese cars and trucks in a weak US automobile market. Exports to Europe also declined while growth in shipments to China and other Asian countries – including sales of Japanese factory equipment used in those countries’ own export industries – slowed sharply.

Indian iron ore exporters on Monday warned that demand from steel mills in China had fallen sharply over the past month and that Chinese buyers were defaulting on contracts with suppliers.

Could the Japanese slowdown in sales of cars be driven solely by high oil prices? Could Chinese decline in demand for steel be driven by post Olympian (short-term) slump? I suppose. But in the past neither country had to make an excuse. The probabilities have just increased that we are facing worldwide economic slowdown. That may not be a bad thing. We need things to cool down and normalize. But if you think the “stuff” stocks (energy, materials and industrials) are “growth” stocks that are just taking a breather before they embark on a continuation of the run we saw over last four years, think again.

I hope the following two articles will explain why I think that may not be the case.

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Vitaliy N. Katsenelson, CFA, is Chief Investment Officer at Investment Management Associates in Denver, Colo. He is the author of Active Value Investing (Wiley) and The Little Book of Sideways Markets (Wiley). His books were translated into eight languages. Forbes Magazine called him "The new Benjamin Graham".